Dyspnea has been found to be an independent predictor of mortality among patients with respiratory diseases and is often regarded as a difficult symptom to control in patients with interstitial lung diseases (ILDs). Previous studies have found an association of psychological and physiological factors with dyspnea among patients with chronic obstructive airway diseases. However, symptom management of hospitalized patients with ILDs has been hampered by difficulty in priority, since they are often admitted with multiple psycho-physiological needs. This study examined the prevalence of dyspnea and the psycho-physiological factors associated with it among hospitalized Chinese patients with ILDs. We studied 165 hospitalized patients with ILDs recruited consecutively over three months in a public hospital in Guangzhou, China. Dyspnea and common psycho-physiological factors, including cough symptoms, activity capacity, lung function, physical and mental health status, and anxiety and depression symptoms, were measured. By ordered logistic regression, level of dyspnea statistically significantly affected performance in a six-minute walk test and physical functioning in work or other regular daily activities in hospitalized patients with ILDs. Respiratory rehabilitation with an appropriate intensity of exercise training or other strategies for enhancing the physical functioning of this population with moderate and severe levels of dyspnea should be prioritized.